The Flat-Earth-Academy Guide To

MONEY

This, in due course, will become a sub-index page. But, for now, that would be overkill!

Flat-Earth-Academy.com is supposed to offer things you should find in schools. Some of the "things" are meant to be foundation knowledge. Others try to demonstrate that struggling with ideas can have rewards.

I hope eventually to expand the "Money" department in several directions....

What do "economists" study, know?

What do you need to know about managing personal finances?

Is money "the root of all evil"? (I would say no.)

But! For now... this page is merely one of the "try to convince you that struggling with ideas can be fun" pages... Oh, apart from mentioning that I DO have a fairly extensive... some might say overly so!... set of pages about "investing": Doing things with your money which should leave you more wealthy later. If I buy an ice-cream cone, I have spent that money. If I buy the right fine painting, at the right price, and five years from now I can sell it for so much money, that after the expenses of buying, owning and selling the painting, then I successfully invested the money. (The pages I've written mostly consider investing in the stock market.)

A "money" topic which you don't "need" to know about...
But which I hope you will find interesting

Crypto currencies... for instance, bitcoin

This doesn't aspire to be "the whole story of Bitcoin"... but it tries to shed a little light on an aspect that stumped me, and several very bright, knowledgeable people I lodged enquiries with.

First... just in case... "What is bitcoin?"

Bitcoin is the so far... so far as we know (and I'll come back to that!)... is the so far most successful of the crypto-currencies which are emerging.

So what is a crypto-currency?

It is a new sort of money. The technologies are very different, but when I say crypto-currencies are a "new sort of money", it is a bit like someone might have said, a few years ago, that "e-mail is a new sort of mail".

"Why do we need a new sort of money?", you ask... just as people asked "Why do we need a new sort of mail?".

1) Do you like paying your bank for the "services" it provides? It isn't just the fees you pay for your accounts, making a transfer, etc. When you leave money on deposit at a bank, the bank makes money off of that. If you borrow from the financial services industry you can pay 15% and more. When you loan them the money for which they charge that interest, how much of the interest income do they pass on to you?

2) When money passes through a bank, or almost any other financial institution, it is visible to the tax collectors and police. I don't mean to suggest that you, Gentle Reader, would want to hide anything from either of them, but there are people who would like to do so.

But I'm not getting a lot closer to the "interesting" (I hope) part of this.

Visit Wikipedia and Bitcoin.it and Thoughtworks.com if you want more comprehensive information. (And I should thank them all, especially the latter two for getting me further along the road to understanding crypto-currencies!)

My bits...

Finally! We get to a few comments from me, which I hope will help you, if you are curious about bitcoin and the others....

First: I've written the Flat-Earth-Academy mainly in the hopes of helping kids. If you are a young reader, remember that life isn't all about pocket money ("allowances") which you decide whether to spend on candy or going to a film. Think, say, about the money that goes 'round and 'round, just so that there is candy in the store. At a big factory somewhere, workers have to be paid. Supplies have to be paid for. The candy has to be delivered to the store. More employees to be paid. The money you hand over for your candy bar will go on quite a journey, one way and another. And all the little bits of money spent in a month had better add up to a very large amount of money, or the store won't be there very long.

Back to crypto-currencies. You've probably heard about the block chain: The block chain is very, VERY clever... worthy of many hours study in its own right... but put that aside for a while. All you need to know about the block chain is....

1) It holds the information about who has what bitcoins.

2) It is secure, in the sense that it can't be lost. Two hundred years ago, banks had "books", in several senses of the word. In them was written down what you had left with them for safe-keeping, and what you'd had back from them. If the bank had a fire, it was really, really bad. There could be difficulties over who was owed what. (Yes, of course, they had procedures in place... but I speak of such things to explain what I mean about the block chain being secure, "can't be lost.")

3) The block chain is "secure" in a second sense. I said it holds the information about who has what bitcoins. Wouldn't it be nice if you could "hack" the block chain, and "give" yourself more? Well.... it would. But Good Luck. Lots of people have been trying for some time. There are things about how the block chain works which make it very hard to "rob" it.

Moving on...

I said "The block chain holds the information about who has what bitcoins." Well... not exactly. The trouble with trying to get your head around a new technology is that it probably doesn't work exactly like the Old Skule thing it is replacing. Go back to email again. TODAY most people understand that while an old fashioned letter had an address on the envelope, and emails have recipient lists in the headers, and that they both take care of sort of the same thing, they aren't really so very similar.

Without the block chain, there'd be no bitcoins. But it "holds the information" in a way that is very different from what we're used to. the information itself isn't what you might imagine it to be.

I've seen it described as a ledger. Well. It is... sort of. Or perhaps it would be better to say that the information takes the place of an old fashioned ledger.

An old fashioned ledger kept track of the flow of money. When money went into your account, it went out of somewhere else, be it ever so humble, e.g. your pocket.

I don't thing the block chain holds history the way a ledger does. Nor does it hold who owns a particular bitcoin.

With a bank's ledger, properly authorized people can look up how much money you have deposited with the bank at the moment. (And can see your balance at different times stretching back into the past.) The block chain doesn't have that sort of information!

They imagined the unimaginable... and then built it.

Partly because I don't really understand it(!), and partly because it is so different from anything we've ever had before for keeping our money safe, I have to ask you to bear with me and imagine something pretty strange. And ask you to believe me when I say that when the inventors built the crypto-currency system, they "built" something a bit like what I'm going to describe, even though it doesn't exist physically like this, of course.

As a starting point, please imagine some post office boxes. Imagine lots and lots and lots of them.

Alternatively, think of the sort of "lockers" that you get for leaving things for safekeeping. The "things" in the block chain that "hold the money" have characteristics of both.

But hang on, 'cause it isn't quite just a bunch of traditional post office boxes. (Or lockers.) Bear with me.

First of all... there's a little slot in each door. You can push a slip of paper in, but you can't get anything out, except by opening the door.

And the door opens with a code, "entered" on a "keypad". You don't use a key. No postman has access to the box.

And here's where it gets really weird: The boxes aren't arranged on the wall in order. In fact, a box's number can change between owners. (It wouldn't change when there was something in the box, but the number of boxes isn't "fixed", it can grow, if necessary. But sometimes... quite often, in fact, a box will become empty. And it's number can change before it is "re-cycled.) And there's a "magic" system in place so that you can go to your box. Or to someone else's box, when you want to put a slip of paper into it through the slit.

Oh... and the code to open a particular box changes from time to time. Not at random! I'll explain, in a moment.

So. We have a vast hall, with row upon row of boxes. Each box has an owner. A person may have one box, or many. An owner can go to one of his/ her boxes, open it, take out any slips in the box. An owner can tell someone else where the owner's box is, so that the "someone else" can put a slip of paper in the box.

What's on these slips of paper?

Numbers! If there's a slip in my box with, say, BTC 57.12 on it, then I HAVE 57.12 bitcoins!

But the slips are rather "magic" too. You can't forge one. But you can "chop it in bits". I could take my BTC 57.12 slip, and turn it into one slip saying BTC 50 and another saying BTC 7.12. But the slips I make from the old slip will always add up to the number that was on the old slip.

Now, if I want to, I can put one of the slips into one of my own boxes, and put the other in one of your boxes. I can always open MY box, and get at the slip I've put there. (A box can hold several slips, by the way.) But only YOU can get at (and thus use) a slip that's been put in you box through the "slit in the door" which I described earlier.

(I'm not, by the way, going to go into how you get someone to give you bitcoins in the first place, to start your collection of slips, nor how you can turn the slips we are imagining into "real" money that you could use in the outside world. (There are ways!... covered in the Wikipedia article, for a start.) I will mention one easy- to- grasp way: Suppose you do something for, or give something to, someone who already has bitcoins? He can pay you from his supply, can't he! And your bitcoin fortune begins! But where did he (or she) get the bitcoins you would be given?

So, as I said, we have this vast hall of boxes.

There's a system... I don't know the details... for letting you know where there's an empty box. And when you take over an empty box, you can change the password for opening it. And you learn the address of the box, so that you can go back to it, and more importantly, tell others to go there with their slips of paper, to push through the slit so that the bitcoins on the slip become yours.

Hey!

There's something weird here! NOBODY knows WHO owns what! Nobody knows where things came from. You just have the boxes with the slips. If you forget where your box(es) is/ are, or its password, no one can help you! Any slips in that box will sit there unloved until the end of time. (Or until you remember the box number and the password!) Weird! As crypto-currency is in several ways!

There are no "armed guards" protecting the boxes... the system "guards" them. If you can find a way to open one that doesn't belong to you, the slips in it are yours! (The fact you can open the box is the whole determinant of ownership.)

Yes, I know...

The weakest part of the above is the bit where I said you could "split" a slip marked BTC 57.12 into two slips, BTC 50.00 and BTC 7.12, and that the numbers on the new slips had to add up to the number on the first slip.

Obviously, the mechanism is somewhat different. But in principle, that's how you spend some of your bitcoin money.

Note that there are no "coins", nor anything even much like them. You don't pass "something" on, that goes on existing, just moving from one owner's pocket to another. (I suppose if person "A" had, from some earlier transaction, a "slip" saying BTC 50, and he owed "B" 50, and then "B" owed "C" 50, the same slip might pass from A to B to C... but as soon as the need to "make change" arose, any similarity to what we're used to breaks down.

How does it work?

The block chain is "just" a bunch of numbers living in cyberspace. (There are several copies, and they continually change, and update one another... all of that is a fascinating story for another time.) Just a bunch of numbers. How do you get "a bunch of numbers" to "hold" all the boxes, slips, passwords? That's not so very difficult for an experienced programmer.

The amazing part was coming up with this extraordinary new alternatives to the systems of storing and passing money back and forth between us. We've had coins for perhaps 2700 years. Before that, we passed lumps of valuable metal back and forth, perhaps going back another millennium or so. I don't know when we started keeping money simply as figures in a ledger, not backed up by actual coins or notes held SOMEWHERE... not long ago, I suspect.

The crypto-currencies are a logical extension of "figures in a ledger", but they are very different, a new breed... as email is "different" from mail. I wonder how long it will be before they are deemed "every day" and "unremarkable"?

No promises...

I hope you were able to make sense of what I was trying to say? And that it actually bears some relation to how crypto-currencies actually work! I can't promise that it does! And of course, I didn't begin to look at many aspects of crypto-currencies. But until you understand what is in the block chain, understanding the container is fairly moot, don't you think?

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